Gap widens between Saudi Arabia’s very rich and very poor

With inflation rising across the Gulf region, Saudi Arabia’s perennial problem of an unequal distribution of wealth has never been so obvious. While poor Saudis line up for hours to obtain water in Jidda, others are able to take advantage of America’s new-found disdain for gas-guzzling four-wheel-drives by snapping up imported cars.

RIYADH: With inflation rising across the Gulf region, Saudi Arabia’s perennial problem of an unequal distribution of wealth has never been so obvious.

While poor Saudis line up for hours to obtain water in Jidda, others are able to take advantage of America’s new-found disdain for gas-guzzling four-wheel-drives by snapping up imported cars.

Thousands of couples are cutting costs by forgoing individual weddings in favor of mass ceremonies carried out by a charity backed by Saudi princes. But the affluent are still going on vacation, albeit opting for more affordable visits to neighboring Arab countries rather than to Europe or Asia.

Surging oil prices have led to a turnaround in Saudi Arabia’s economic fortunes and a return to some of the big spending – by wealthy individuals and the monarchy – that characterized the 1970s and 1980s.

But the boom has also driven up the prices for food and fuel, creating discontent in a rapidly changing country where about two-thirds of the 17 million local resident are under 30, educated, outspoken and aware of events abroad.

This has put the royal Al Saud family under greater scrutiny.

In June, inflation in the country, the world’s top oil exporter, hit a 30-year high of 10.6 percent, mainly because of increases in food and housing costs.

“It hasn’t reached the point that it’s barred us from traveling,” said Ohoud, a bank manager from Riyadh who declined to give her family name. “We will still travel like we used to and maintain the same lifestyle.”

But she said that she had noticed that salaries were not keeping pace with prices.

John Sfakianakis, chief economist at SABB bank, a Saudi subsidiary of HSBC, said the government could not raise wages to match inflation if it wanted to avoid adding inflationary pressures, but it did so at the risk of angering workers.

“Public sector workers don’t understand why the government is not raising wages to match inflation; there is a disconnection between expectations and what the government delivers and so there is discontent,” he said.

A January wage increase of 5 percent for government employees disappointed those Saudis who earn less than 10,000 riyals, or $2,666, a month, especially after other Gulf countries moved more quickly to raise wages by larger amounts.

Saudis earning less than that figure would still expect to employ a driver and at least one maid. Saudis are not taxed and receive free health, education and other benefits.

“I don’t feel it has affected me too much because my family’s financial situation is good,” said Najla, 22, a bank intern in Riyadh, who also declined to give her family name. “But I’ve noticed we don’t buy as many things as we used to, like laptops. In every home, each person has to buy at least one a year, that’s the usual demand. But not for us this year.”

At the other end of the spectrum is Lulwah, 36, a mother of five who sells snacks on a mat in a Riyadh park. She recently had to take out a loan from a charity.

“This is the second time I have done it and I have used the money to chip in with six other women to start a catering business,” she said. “I have also taken to sewing clothes, some to sell and some to dress my children with, and it has helped me a lot. But things are still difficult for my husband and me.”

Saudis are careful about expressing public criticism lest it be taken for dissent. But in anonymous Web forums, and in private, those who suffer ask where the money has gone.

“Saudi Arabia is about to enter an era where there is no middle class, you will either find extremely rich people or extremely poor people, unfortunately,” read a comment on a popular business news portal, www.alaswaq.net.

Another contributor, who went by the name “subjugated Saudi,” said: “The Saudi people now know the extent of graft at the administration and the squandering of the budget.”

The question of how many people live in poverty remains taboo in a kingdom fabled for its tremendous wealth. But half the population rents its home, and 10 billion riyals has been set aside to provide low-cost housing.

As the wealth divide widens, the spotlight inevitably turns to the amount of money eaten up by the royal family, whose members run into the thousands.

Some, like Prince Alwaleed bin Talal, are on lists of the world’s richest people, compiled by magazines like Forbes.

In the late 1990s, when oil was about $10 a barrel, King Abdullah, then the crown prince, said publicly that state finances – generally understood to include living expenses for the royals – should be reined in.

Since taking the throne in 2005, he has been credited with a drive to reduce royal spending – visible in opulent palaces, yachts and extravagant lifestyles – as well as an effort to combat corruption in state agencies.

Riyadh faced international pressure for social and political reforms after the Sept. 11, 2001, terror attacks in the United States, in which 15 of the 19 attackers were Saudi. Analysts noted that many of those men came from the poor southern areas of the desert nation.

The attacks came at the beginning of the six-fold jump in oil prices that has significantly changed the country’s fortunes. Now, some analysts say the need to change the way the kingdom is run is ever more pressing.

A Saudi economist, who has worked with the government, said there should be more transparency to allow Saudis to understand how the state allocated the revenue from oil.

“Nobody knows how much the government takes in from oil,” said the economist, speaking on condition of anonymity because he was not authorized to comment on the subject.

“We know how much is in the budget, but not how much Aramco got in the first place.,” he said, referring to the state oil company. “The budget figure is a check Aramco gave to the government.”

“You can make some calculations; there is a 20 to 22 percent difference,” he said.

But as long as massive revenue flow continues, government spending and royal largesse can ensure that dissent stays muted.

“We are passing through a very critical stage. You are talking about a state with more than a billion dollars every 24 hours. They can buy anyone,” said a liberal reformer who was detained in 2004 and who also requested anonymity.

But there are signs that the rising cost of living may be having an affect.

Anecdotal evidence suggests that crime has risen in Saudi cities, with a sharp rise in the number of executions in 2007 to 143. The Saudi media has singled out alleged Bangladeshi mafias as the cause.

More than seven million foreigners work in Saudi Arabia, mostly blue-collar workers from Asia. They have been among the hardest hit by rising prices, although analysts say there is no major movement of labor out of the kingdom.

“Saudi Arabia is still considered a country where you can make larger savings than in the UAE or Qatar despite rising inflationary pressures,” Sfakianakis, of SAAB, said.

Prince’s holdings disclosed

Data from the Saudi stock exchange showed that Prince Alwaleed bin Talal was the largest private investor on the exchange with 53.47 billion riyals, or $14.3 billion, worth of direct and indirect shareholdings, Reuters reported Sunday from Riyadh.

Alwaleed – the world’s 19th richest person, with a fortune of $21 billion, according to Forbes – runs Kingdom Holding, which is the biggest shareholder in Citigroup.

On Saturday, the Saudi stock exchange began identifying investors holding corporate stakes of 5 percent or more in a bid to increase transparency and to encourage confidence in the Saudi market, the worst performing market in the Gulf region so far this year.

About 90 percent of Alwaleed’s holdings in Saudi shares are in Kingdom, in which he owns a 94 percent stake, the stock exchange said on its Web site.